How Well Do Contemporary Theories Explain Floating Exchange Rate Changes in an Emerging Economy: The Case of EUR/PLN
The purpose of this paper is to investigate how well contemporary exchange rate theories explain fluctuations in exchange rates of emerging economies, before and after the Global Financial Crisis (GFC). As an example, the EUR/PLN exchange rate in 1999–2015 was selected as the currency pair that was...
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MDPI AG
2022-11-01
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| Series: | Economies |
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| Online Access: | https://www.mdpi.com/2227-7099/10/11/282 |
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| author | Adrian Marek Burda |
| author_facet | Adrian Marek Burda |
| author_sort | Adrian Marek Burda |
| collection | DOAJ |
| description | The purpose of this paper is to investigate how well contemporary exchange rate theories explain fluctuations in exchange rates of emerging economies, before and after the Global Financial Crisis (GFC). As an example, the EUR/PLN exchange rate in 1999–2015 was selected as the currency pair that was the most liquid in the region; it had a stable exchange rate regime in the given period. The whole analysis was performed within the selected linear vector error correction (VEC) model framework. VEC models incorporate such well-known theories as purchasing power parity (PPP), the uncovered interest rate parity (UIP), the Harrod–Balassa–Samuelson (HBS) effect, the terms of trade (TOT), the net financial asset (NFA) theory and risk premium. The results indicate the greater importance of external factors—in particular, the Euro Area (EA) short-term interest rates and EA price shocks after the GFC. The main sources of EUR/PLN variability were found to be exchange rate shocks, terms of trade shocks and foreign and domestic short-term interest rate shocks, as well as foreign price shocks. These results are of particularly high importance for our own exchange rate shocks and indicate that a large part of exchange rate fluctuations in EUR/PLN still remains unexplained. |
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| id | doaj.art-ababba99a670450789e3c6c2d93ebd99 |
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| issn | 2227-7099 |
| language | English |
| last_indexed | 2024-03-09T18:23:40Z |
| publishDate | 2022-11-01 |
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| series | Economies |
| spelling | doaj.art-ababba99a670450789e3c6c2d93ebd992023-11-24T08:07:05ZengMDPI AGEconomies2227-70992022-11-01101128210.3390/economies10110282How Well Do Contemporary Theories Explain Floating Exchange Rate Changes in an Emerging Economy: The Case of EUR/PLNAdrian Marek Burda0Department of Economics, Cracow University of Economics, 31-510 Krakow, PolandThe purpose of this paper is to investigate how well contemporary exchange rate theories explain fluctuations in exchange rates of emerging economies, before and after the Global Financial Crisis (GFC). As an example, the EUR/PLN exchange rate in 1999–2015 was selected as the currency pair that was the most liquid in the region; it had a stable exchange rate regime in the given period. The whole analysis was performed within the selected linear vector error correction (VEC) model framework. VEC models incorporate such well-known theories as purchasing power parity (PPP), the uncovered interest rate parity (UIP), the Harrod–Balassa–Samuelson (HBS) effect, the terms of trade (TOT), the net financial asset (NFA) theory and risk premium. The results indicate the greater importance of external factors—in particular, the Euro Area (EA) short-term interest rates and EA price shocks after the GFC. The main sources of EUR/PLN variability were found to be exchange rate shocks, terms of trade shocks and foreign and domestic short-term interest rate shocks, as well as foreign price shocks. These results are of particularly high importance for our own exchange rate shocks and indicate that a large part of exchange rate fluctuations in EUR/PLN still remains unexplained.https://www.mdpi.com/2227-7099/10/11/282exchange rate modelscapital-enhanced exchange rate modelbehavioral exchange rate modelcointegration |
| spellingShingle | Adrian Marek Burda How Well Do Contemporary Theories Explain Floating Exchange Rate Changes in an Emerging Economy: The Case of EUR/PLN Economies exchange rate models capital-enhanced exchange rate model behavioral exchange rate model cointegration |
| title | How Well Do Contemporary Theories Explain Floating Exchange Rate Changes in an Emerging Economy: The Case of EUR/PLN |
| title_full | How Well Do Contemporary Theories Explain Floating Exchange Rate Changes in an Emerging Economy: The Case of EUR/PLN |
| title_fullStr | How Well Do Contemporary Theories Explain Floating Exchange Rate Changes in an Emerging Economy: The Case of EUR/PLN |
| title_full_unstemmed | How Well Do Contemporary Theories Explain Floating Exchange Rate Changes in an Emerging Economy: The Case of EUR/PLN |
| title_short | How Well Do Contemporary Theories Explain Floating Exchange Rate Changes in an Emerging Economy: The Case of EUR/PLN |
| title_sort | how well do contemporary theories explain floating exchange rate changes in an emerging economy the case of eur pln |
| topic | exchange rate models capital-enhanced exchange rate model behavioral exchange rate model cointegration |
| url | https://www.mdpi.com/2227-7099/10/11/282 |
| work_keys_str_mv | AT adrianmarekburda howwelldocontemporarytheoriesexplainfloatingexchangeratechangesinanemergingeconomythecaseofeurpln |